Brexit: VAT Implications for Your Business

Brexit is no longer an argument, but a fact. It is going to have an impact on businesses, particularly those that import and export to the EU. Although, whether in the long run this impact is going to be good or bad, remains to be seen.

It is important to state up-front that the future is uncertain and it is too early to take action on the points I bring up below. It is, however, crucial that businesses are aware of the consequences and what they need to look out for when it comes to VAT.
One point to first clear up is that despite VAT being introduced by the EU, it is safe to say that the abolition of VAT is extremely unlikely. VAT raises around £120billion per annum and no politician in their right mind will transfer this tax onto other taxes.

However, what might change is…
The UK will no longer be restricted by EU rules and laws and will have more control over deciding where transactions arise and what VAT rate, if any, applies. Unfortunately, this does mean that businesses that rely on EU law in applying a particular VAT treatment may no longer be able to once the Brexit takes place.
Just to note – despite the UK having more freedom, EU VAT rules will still stand and businesses that make transactions in EU countries will be subject to the local rules.
There is no escaping the fact that the Brexit will have an impact on businesses. Depending on what your business specialises in will determine what you need to look out for.

Those that sell goods
Those that sell goods will unfortunately face more administration burdens, predominantly because a Brexit will mean border controls will be put in place and consequently import and export declarations will be required. It is also possible that additional custom duties will be payable.
Consequently, businesses that sell goods to the EU will need to decide whether their business or their EU customer is the importer for VAT purposes. This will determine whether the UK business needs to register and account for EU VAT.

The only burden that will be reduced when selling goods to the EU is that UK businesses will no longer have to submit an EC Sales List or an Intrastat declaration in the UK – minor consolation.
The above all stands as long as ‘normal rules apply’. We therefore have to wait and see if any special agreements are put in place. One thing is clear right now though – there will be a commercial impact. On one hand EU customers will not want to process the additional administration burden if the same goods can be sourced elsewhere in the EU. On the other hand, if the UK business takes away the administration burden from their customers, which I think they will have to do to keep their customers happy, they will need to register for VAT in an EU country, increasing their compliance costs. Lose, lose? Time will tell.

Those that supply services
For those that supply services, they will face fewer barriers. VAT treatments are likely to remain the same in these instances and businesses may even face significant benefits as exports will be treated as non-EU sales and given higher input VAT recovery rights.
The only area these businesses will face additional administration burdens will be in regards to VAT MOSS, which allows businesses to account for all EU VAT through a single UK portal. It is unlikely this scheme will be available in the UK, which means businesses will have to register for VAT in every EU country in which they supply services or register under a non-union MOSS scheme.

The government is already taking steps to offset the impact of Brexit by announcing that they are looking to reduce the corporation tax rate to 15%. However, the future of UK businesses will ultimately be determined by how successful the exit negotiations are. Until these take place it is difficult to make plans to mitigate the effect. The only thing I can recommend is to take steps now to solidify your relationship with your EU customers. This will ensure that when the time comes you will be in a stronger position to renegotiate contracts.